When You’re Off the Map…

Here’s a question we get asked a lot:

So what do you do when [instrument XYZ] is at prices not seen in a long time?

Or, like if you’re an ES or YM trader, when we are making and then breaking out of all-time highs? Personally, as a volume (and time) profiler, I think this can be one of the toughest times to be trading. You have only vague landmarks with which to navigate. Or maybe, like today in the ES, none at all. But there are ways to approach solving this conundrum and I thought some of you might be interested a few ideas.

None of this is going to be Earth-shattering but maybe it sparks something that in turn pops you out of your particular trading pothole. And, to wit, here are my favorite ideas – in no particular order:

  • Trade something else. Diversify your playbook. Become adept at trading more than one instrument class for just such occasions  While the ES is certainly my main trading squeeze, I like to make a “booty call” to oil too. When the mood strikes or circumstances dictate. ;-} In the ES I am a reversion trader primarily. This means I am looking for retests of known (to me) previously important prices, and I trade back to value.  When the the ES is hell-bent on seeking new value in unfamiliar territory I usually look elsewhere for my daily bread. For me, elsewhere is oil (the CL). Oil has been stuck in a $10 range for months now, giving lots and lots of opportunity for back-to-value kinds of trades.

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ES

ES – Megatrend Day

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CL

CL – Range Bound for Months

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  • Don’t trade at all. Maybe today was a good example, what with the Fed’s accidental early release, and the surprising (to me) strength of the trend day. It didn’t retrace and it just wouldn’t quit. Sometimes these kinds of situations are hard to understand (and frustrating as hell) in the moment, and can only be understood in calm hindsight. So if you find your expectations and game plan way off from reality – just call it a day. Go do something else you enjoy and look at the scenario again later. The sun will rise and the market will be here tomorrow too. Realize that when you find yourself confused and not really understanding and accepting what you’re seeing you open yourself up to revenge (if you had a loss already) and impulse trades (fear of missing out). Needless to say, but I’ll say it anyway, these trades are death to your equity curve.
  • Expand your technical repitoire. To diehard profilers this may be anathema – but you can use things other than profiling to understand what you’re seeing on the chart. What about Fibonacci extensions? How about plain ‘ol statistical ranges to estimate how wide the next day’s range might be? Or, maybe this – one my all-time favorite techniques – the measured move. Many of you have heard me talk about them in the webinars or seen my tweets about them (when I used to tweet during market hours a lot). They are dead-simple and that’s why I love using them intraday and on larger time frames. All they are is a way to measure the possible “destination” of a current rotation/swing or larger move.  I know I know. It seems too simple to be useful, right? Well… try it yourself. Here’s what to do:
    • Cue up your charting platform’s line drawing tool
    • Find a swing
    • Draw a line from the low to the high (or vice versa)
    • Copy it
    • Paste it onto the bottom of the next pullback to “predict” the extent of the next leg. HINT: in the ES, larger rotations happen (generally) in 2 segments, and sometimes 3 equal-length segments.
ES - MM

ES – Measured Up-Move from April 9 RTH

So there it is. Certainly not an exhaustive list of all things you might do, but as I said, maybe it’ll spark something new for you. Once thing most certainly leads to another in this life.

Trade ’em well this week…

P.S. I have never seen the TV show called Off the Map, but I doubt it will be of any help to your trading. Just sayin’.